From msnbc.com's Tom Curry:
Warning of the effects of a partial federal government shutdown President Obama said Wednesday that it “means that small business owners who are counting on that loan to open their business, to make payroll, to expand, suddenly they can't do it.”
Was he correct?
The federal Small Business Administration said that in the event of shutdown there will be no new approvals of some types of SBA loan applications.
SBA estimates that each week the agency is shut down would mean more than $400 million in capital that will not be going to small businesses through SBA-supported lending. This would work out to over 1,000 small businesses a week not getting loans.
Some types of SBA loans will continue to be processed, such as Disaster Assistance loans for homeowners, renters and businesses.
According to the American Bankers Association, less than 10 percent of small business loans are backed by the SBA.
According to ABA spokeswoman Carol Kaplan, “Since less than 10 percent of commercial loans are SBA-backed, the overall impact of a shutdown would be minimal. However, a shutdown would mean that SBA loans currently in the pipeline -- which normally take weeks to process -- would be held up even longer. For a company that is relying on an SBA-backed loan, the delay could have a serious impact.”
Small businesses are defined by the SBA as those having fewer than 500 employees. They represent 99.9 percent of the nation’s businesses.
According to a study by the National Federation of Independent Businesses, about 5 percent of small businesses participate in SBA finance related programs.
So, said NFIB spokeswoman Cynthia Magnuson, the group does not agree with Obama’s assessment, since a government shutdown “would not impact the vast majority of small-business owners. Moreover, we’re not hearing from our members that they are at all worried about SBA funding. Our members are more concerned that Washington gets its spending under control and reaches a sustainable budget solution that protects small businesses from economic uncertainty.”
(NFIB’s political action committee gives mostly to Republican candidates.)
When Obama referred to small business owners relying on loans to make their payroll, he might have been compressing the time frame.
It takes weeks for the loans to be processed -- so an owner wouldn’t get his loan in time to make next week’s payroll. And a small firm facing urgent payroll demands might not qualify for a loan to begin with.
Obama also warned of the impact of a shutdown on home mortgage lending, saying a shutdown “means folks who are potentially processing a mortgage, they may not be able to get it.”
Melanie Roussell, a spokeswoman for the Department of Housing and Urban Development, said that during a government shutdown, the Federal Housing Administration staff will not be on duty to underwrite or approve any new loans.
In 2010 FHA insurance was provided for 40 percent of the purchase market and 9 percent of the house refinance market. Last year, 80 percent of all FHA-backed loans were for first-time homebuyers. “In the recent market, where private capital has not been available, FHA has stepped in. FHA serves a much larger share of the market than we have in previous years,” Roussell said. Since the last federal government shutdown in 1995-1996, FHA market share has more than doubled, she said.